Tablets Join The Long Race To The Bottom

Remember netbooks? Exactly. Two years ago netbooks could do no wrong. They were the future, a way to get work done on the go on a laptop the size of a paperback book. In the end, manufacturers saw them as a great way to squeeze profit out of a moribund product line.

Sadly, I fear that’s where we’re headed in the tablet market.

For a long time it was a few horse race. Motorola, Apple, and Samsung were pumping out top-of-the-line tablets and selling them at a premium, because that’s what the market could support. However, with the launch of the $199 Kindle Fire, and more recently the Nexus 7, the floodgates will soon open, driving down prices, quality, and value.

Here’s the pattern: a product group becomes popular. Major players make comparatively expensive products with good QA and designs. Early adopters gobble them up, then there’s a brief period of popular adoption. Then everyone who was going to buy a tablet has a tablet. Positions are taken regarding the various advantages of each type. Flame wars are fought.

As evidenced by the mediocre reviews of the Samsung Galaxy Note 10.1 and the many reports of broken Nexus 7 devices, it’s clear that the tablet segment is losing profitability. Build quality and design dedication are falling and the tablets of yesterday, the tank-like Xoom and the rough and tumble Kindle, are ceding to chintzier, cheaper devices designed to entice bargain buyers. As manufacturers realize they have to hit that magical $199 price point, the quality will fall even further as more corners are cut. This spiral will continue until OEMs start shipping barely upgraded devices for under $200.

Sure, it’s nice to have low-priced options on the market but low price without intrinsic value is bad for the consumer. Resale value, for example, is an excellent indicator of overall demand and no models in recent memory hold their value over a few months. A new Toshiba Excite costs costs $400 while a used one tops out at about $250. Similar price drops can be seen in nearly every other “value” tablet.

I don’t think we’re going to see the death of tablets the way we saw the death of netbooks. Netbooks were so wildly niche that they just couldn’t survive. Tablets, on the other hand, will be with us for a long, long time. The problem is that we’re about to see tablet stagnation and the quality and value will go down exponentially. The danger is that as profits fall, tablet makers will build cheaper and cheaper hardware while maintaining premium prices. We’re not quite there yet, but we’re getting there.

Prognoses like these are tough to take early on in a product life cycle by the tell-tale habits of entrenched products are clearly at work here. Manufacturers can either take a huge hit vs. costs – consider the rumors of a $199 Surface – or drive down costs. The tendency, of course, is just to go cheaper and cheaper until the product is irrelevant.